The Pre-Market Break of VWAP Setup transcript

all right everyone so in today's episode I'm going to break down for you the premarket break of vwap setup this was the setup that uh today gave me my biggest winner and it was on mg this is a stock that is actually a continuation setup from the move that began yesterday squeezes up yesterday holds those levels after hours pre-market we get that continuation and we get that push higher so today we hit a new high over the last two days on mg which was certainly good to see the float on this one uh 737,000 shares it's a very low float stock um it's one that we have traded in the past I'll pull up the chart so you can see um this is my last day of trading on the traveling trading station here I've been um on an island off the coast of New England for the last week and uh it's it's been really nice but I'll be looking forward to being back home on Monday and I'll be back home for my uh Weekly game plan episode that I'll upload Sunday night so here's mg we'll go 5 minute chart full screen and you can see yesterday you you guys ended up getting a really nice move on this around it was like 10:30 111 it goes from 3: all the way to 6 you got a 100% move and I missed it completely I didn't even trade it because yesterday was a small green day for me and I locked it up on the earlier side and then I didn't want to overstay my welcome so ended up completely missing um that move but nonetheless good job for those of you guys that hit it it pulls back it comes back up and this is kind of interesting price action right here because if you recall from yesterday's episode I talked about how sometimes towards the end of a hot streak we'll start excuse me seeing stocks are going up 50 or 100% and then coming all the way back down so this went from $3 up to six and then all the way back down to 350 which is a huge huge retracement typically I I would I would not be happy with that kind of pullback because it's you know for me the way I think about it is I like to see stocks that are holding usually in the top 75 to 80% of their range so that would be sort of up in this area here and if this is the range from the beginning of the move I want to see it holding in the top you know kind of 20% here so when a stock pulls back to the 50% retracement that's kind of the bare minimum like or not the bare that's the most that I'm kind of comfortable with before I'm just like it's too weak there's just too many sellers now we actually have a new scan um that we've just released today it's top of trend right down here and this is a scan that is um looking at stocks that are currently positioned in the top 80% of their range and that have also met our criteria for uh volatility today so these could be some interesting ideas for watching um continuation as it turns out today most of the stocks are on this scan are a little bit higher float so they're not really kind of what I would go for on this particular day but I think one of the issues we also have today is that it's Friday it's the end of the week and it's a Friday in August this isn't usually a time where we see really strong momentum so my thought even yesterday was that my the odds of me having a big winner today were pretty low and that my next best chance of having a really good trade is probably not till Monday Tuesday Wednesday next week so anyways um so yesterday mg gives us this nice move but then it retraces like 70% of the move that's too much then it bounces all the way back up to volume weight average price but then it fades again going into the close and then after hours kind of out of nowhere on noticeably light volume it pops back up to five pulls back and goes all the way back up to 550 I thought I find the volume here very interesting because it took only that amount of volume to send this from $4 back to 550 whereas in this area you had a lot more volume but the move was smaller and that tells me during this period of time there were a lot more sellers selling into that move selling into vwap and then of course it faded off that level so this was not a sustained move but then after hours on light volume all of a sudden I don't know shorts caught off guard or they they were just not there selling the stock and you get that nice move so it pops up there pulls back squeezes up to 550 so when I sat down this morning at about 6:30 here I saw that mg already had a couple levels in place so I drew these two descending resistance lines one that connected right here right here and that kind of touched right about here and another that touched the high of this candle from after hours so there were the two levels that I drew and those have been drawn since like 6:30 in the morning I sat down and when I first sat down the scan had uh two other stocks that were interesting the leading percentage Gainer was ITI this is a stock that I looked at it on my phone and I was like well it's a 39 million share float but it is up 63% let's take a look and I quickly saw that it's a buyout so the stock has been acquired by another company it's going to trade sideways its value has been determined so that's out of play the next one down was kit kit TT and kit has pulled back a good bit here so it's not still at the top of the scan but um but when I sat down at about 7even Kit had made this move pre-market it had pulled back and then it's coming back up right here and this was actually the stock I took my first trade on so what I did on kit if we pull this um back down to the one minute chart I'll show you my first trade of the day here because this was also a break of vwap setup so kit squeezes up here from 430 up to 5:30 that is front side of the move that's when it was the cleanest then it pulls back to vwap breaks vwap comes back up sells off back to vwap Fades off it then comes back up right here and so as it broke back over vwap right here we then sort of pull back and retest it as you can see I got in right there and I bought my first trade on this one was let's see um I bought at 305 so we broke over three we held support at three and I was like okay here we go so I'm adding at 305 I add at 310 and 311 and then you know what ends up happening if we zoom in on this chart you'll see that it hits a high here of 314 and then it stalls out it drops back down and it breaks three and I stopped out first trade of the day a $600 loss here's my p&l for the day by the way $668 111 that was my first trade of the day in the red all right so that's not great but it's still early so not too bad still lots of time to recover and of course I did so it pulls back here to about 290 it then comes back up but I was like you know what this stock is I don't think it's trustworthy it's too choppy it's too thickly traded and I'm glad I avoided it it pops up and then it flushes again even more dramatically on higher volume so at that point I was like all right this was a break of vwap setup and what I wanted to see happen is that once we held over vwap I wanted to see that we started squeezing back to the pre-market High that's the Target and my stop is if we go back below vwap and I mooved the stop a little bit tighter right at $3 because I thought if we break below the whole dollar of psychological support that's not going to be good either so I kept a tight stop on it but it just was not able to move higher now one challenge with the break of vwap setup is that it inherently requires the stock to have gone below vwap right so here we're above vwap and then we come down to it which isn't great and then we break vwap that's bad then we sell off even more that's not good now we do sometimes see these breaks and this big squeeze back up but the reason that happens that you get the big squeeze is because shorts usually get confident when a stock is holding below vwap they're holding it below vwap they're selling against this level they're looking for the fade and so they don't expect it to rip back up this has already shown early weakness and during a time that it really shouldn't have weakness also note the floats 1.3 million shares kit currently has let's see 22 million shares of volume it's up 22% so you know it it really shouldn't have been so difficult to trade but it was there was a headline out um I don't know if it was a super significant headline but there was some news out on it um it's not a Chinese uh company you know it's just something kind of pay attention to so you know it's a robotics developer ocean robots but also Cloud software they make candy bars too this company does everything um Services delivered in uh modern business model to the ocean industry okay so anyways um you know so we had this headline but it just didn't feel like um it it was Mo it just wasn't moving cleanly it was just too difficult to trade so pretty much after that trade I was like kit is dead to me this stock is not one that I'm going to look at for the rest of the day it's it's over this it's just two week and so rather than overtrading it and struggling to try to recoup my 600 I just said you know what I'm not going to throw good money after bad I'm going to just cut my loss on kit move on to something else so the second stock that I had on watch on my side chart was mg and mg I had seen they had made this big move yesterday the only thing is it wasn't gapping up a lot because if we look at yesterday's close uh we closed at about 380 and pre-market right in this area we're at like 440 so we're only up like 10% it's not a big gapper so because it's not a big gap or I didn't really notice it initially uh but then you know I I did see it so I see of course it's got this big move and right here as it comes up I'm like okay break a vwap setup and I thought this one as I saw it squeezing up had more potential to me and here's the reason number one the price is a little higher than kit which is good because um a lot of these stocks will trade in you know they'll kind of move in like 10 10% kind of blocks like sort of jumps 10% then it pulls back then another 10% 10% on a $5 stock is0 50 10% on a $2 stock is you know 203 cents so um excuse me so for that reason I thought it had potential for a bigger cents per share move and I knew I was still going to be taking the same share size uh so as it starts to pop up right here I jumped in right on that micro pullback for the break of vwap and it was like just perfect timing jump in it breaks vwap squee and this is also right at 7:00 a.m. 7:00 a.m. top of the hour this is when a lot of retail Traders come online so all of a sudden it's popping up I'm adding and I'm riding this momentum it goes from uh vwap here which was right around 470 and it goes all the way up to five it pulls back it goes up to 520 530 540 another pull back up to 550 560 flushes back up flushes struggles here and then it drops this end ended up being the high of that little area 560 now if I back this up for one second I'll just draw on this um chart so first of all we had um we sort of had this level like right in here right and we get we did kind of come right into it around five and I was a little worried about that and then we also had the next level oops um sorry so then the next level was I'll have to remove this but it's up here a little higher it was right around here right so I was like okay we're over it but we're under it you know we're kind of struggling right at this level it wasn't super clean so because we had this first resistance level I was like I better take profit so it took some profit and then it holds that level and I'm like okay I'm going to add back and it squeezes up here and then it pulls back and I'm like I don't know is this going to work but we did get first pullback and second pullback and I think the reason this worked better in some ways was because it had made this really big move yesterday which now kind of proved to us that this is a stock that has the potential to squeeze this thing can go up 100% in you know 20 30 minutes so even though there wasn't a fresh Catalyst driving the move I felt like it was worth taking a stab especially at that vwap spot because that's a spot where momentum shifts from the Bears to the Bulls right from bearish to bullish again this did have some inherent weakness the fact that it had dropped after hours or not after hours in the afternoon yesterday and then pre-market was back below vwap but uh even in spite of that I kind of was looking at this and thinking you know we sort of have some you know support sort of right in this area and depending on how you draw these lines it feels like there could be some support in here so for that reason I was thinking it it's worth a stab and so I took my first trade on that got in the green right away on the first trade took second trade third trade as it moves higher but then notice how we got into this area here of kind of struggling we're right in between support at this previous resistance line so we broke it we're above it we come back down we test it as support then we come back up and we're at resistance we pull back and then we pop through here and I did take that trade but with small size and the reason I took it with small size was because I actually gave back a little profit right in this area in this area I thought we were going to push all the way up to six and then we flushed so I lost a little bit there and I tried it again right here and I lost again so when it came back up a third time I was like I don't know and then all of a sudden it's like boom 580 so I was like gosh darn it all right well I'm buying the dip here and we got that trade up to about 610 and I thought when it held over six this is my concern 200 moving average so I check the daily and I'm like our 200 is right here at six bucks can we break this level critical resistance level and I thought if if there's ever a chance that we would break it it would be right now with this kind of volume right pre-market volume squeezing up so it was worth a try but it wasn't able to hold over six so then it sells off a bit and I was kind of like man this is this is tricky this thing is not easy and right here it does a jack knife so it pops up and jams back down and then bare Flags low and now I'm like all right this thing is not trustworthy in the first 2 minutes of the open it dips to 540 it rips to 620 and that's right back down to 530 540 so I was like you know what man this thing is wild I just can't trust it as we came up towards 10: a.m. 10:30 it tries to break vwap and flushes back down another rejection and right now you can see it's back up above vwap and in some ways you know we're not that far off from breaking this pre-market high so if we do our technical analysis right now we're going to Mark out the the high well you should Mark the high but we can mark this pivot here now sorry back to full screen um descending resistance clearly we this steep level we broke above that so we're obviously above that level um I don't don't know if that's a valid level I don't usually love Crossing price action like I have to cross it here to connect these two dots but since it popped but didn't hold that level it might be valid we popped we were below it I feel like that might be valid so right now we're getting above it and we're kind of we've got ascending support potentially in here we've got a pivot right here at 581 which we tap that was the high of this candle here and if we get above 581 then we're looking at a move to 623 the only thing I would say is that this is a stock that at this point has already shown us it has a um it it it has a desire to to break your heart it's already given us this trap right here that caused a big flush had this uh bull trap right here that jack knife and of course the one at the open so is this going to be one that gives you an afternoon kind of you know fireworks display and goes goes crazy it's possible it is possible it it the fact that it's holding vwap is good you could almost visualize this as a head and shoulders inverted which would lead towards the move up the issue for me is that as I look at this type of pattern I feel like I don't have the risk tolerance to trade it if I pull up a bookmap here you'll see a 20,000 share seller at 6 another one at 590 now you could see those orders on your level two if you have your level two open um far enough and you and you could scroll down and see them but this is also good displayed up here so you've got 40,000 shares of sell orders at 590 and6 and there's another 12,000 shares there at 580 now at the end of the day 60,000 shares of sell orders compared to 43 million shares of volume could probably get absorbed fairly easily those orders have been there pretty much all day if we break that level then it seems like we do have more room up but I'm just a little I mean honestly just for me at this point uh trading is is not this is kind of going to sound counterintuitive but it's not as much about making money as it is about being defensive and managing your risk you have to manage your risk that has to be the first thing you're thinking so if I look at this right now and I'm thinking from the perspective of just making money I'm going to buy 10,000 shares right here and look for the squeeze through six and a possible halt up right but if I'm thinking about this from the perspective of risk risk first what I'm going to say is this stock previous price action has shown pops and drops right now we're seeing up on the level two we've got that seller up at 90 which I just saw the seller's now at see a 26,000 share seller at 80 that just came in that's a new seller that just came up so it's heavy and you know just like that with 10,000 shares I could be down 10 cents and if I have to hit the bid I might get a couple cents of slippage and I'm hey back to break even on the day nice work it's 1 in the afternoon and now I'm going to feel like I don't want to walk away here Break Even after being sitting in the green all morning so maybe I'll you know what maybe I'll get back in and then next thing you know I'm back in and I get caught again now I'm down a th000 and all of a sudden things start to fall apart and they can fall apart really quickly so you know I it's not look if you're an adult you guys can do as you'd like if you like this setup if you have the risk tolerance to trade it depending on how much you're up today you know you do as you'd like but for me the way I look at it is how confident am I that this is going to give me the move I'm looking for and my confidence goes down when I see these types of rejection candles here and here and to be honest my confidence is lower period trading in the afternoon because that's not the time of day I typically do well you know that I know that about myself that's just those are my metrics so it's you know it it comes from um my cautiousness on this comes from I think a a good a good healthy place so if we look at detailed and I mean this is going to be all time but you know we look at um you know days of the week and you can see it's like I consistently screw up trading in the afternoon I do well trading in the morning stocks that have breaking news and the stocks have breaking news that are really really strong are just super strong in the morning and then in the afternoon sometimes you'll have ones that are holding up and if you've got a cushion and the Market's really hot we might get some parabolic momentum and things get exciting but that's not has common so what's more common is that any afternoon things get choppy you get faked out you jump in then you jump out then you jump in and jump out you start churning shares and getting yourself frustrated next thing you know you've given back your profit from the morning and because you had that profit for a few hours you grew somewhat attached to it because you kept thinking oh good I've had a nice day I've had a nice day I I've been thinking for the last 5 hours that I've had a nice day well 4 Hour whatever it is doesn't matter you know for the last several hours I've been sitting here thinking I've had a pretty nice day you know 7 a.m. made some money 7:38 and so to lose all of that in kind of a moment of you know just a maybe impulsive trade where you got carried away and you know next thing you know you've made a mistake I just don't think that's worth it so that's that's what I'm risking I'm not risking just the money it's not just the money it's risking the loss of confidence it's it's risking the track record you know it's risking that state of mind that keeps me so healthy every single day where I can come in trade aggressively and do really well all of that is is a lot more valuable than the money because when you lose your confidence then that carries over into the next day right and and now you have the opportunity cost of because you weren't as confident now the next good stock that pops up on Monday you're going to be able hesitant on because you just had a red day on Friday because you did something stupid in the afternoon and that's one of the things that can be really frustrating with trading so to me being defensive means sort of carefully um keeping myself in a state where I'm always like very close to the top of my game or always able to be like almost right at the top of my game where I can just be performing at like 100% And I just knowe for myself that when I'm in the middle of a deep draw down you know and I haven't fortunately this year I've done a pretty good job uh keeping my draw Downs minimal but I did have I I did have a bigger red day in March um let's see or maybe it was February anyways it doesn't matter but I did have a bigger red day you know the earlier part of the year and and that took a you know that took a second to recover from and I was pretty disappointed about it but you know since then that that also kind of became a catalyst for a little bit of tightening up my risk because I was disappointed with myself that I had made that mistake um you know I look I can tell you a million times manage your risk trading a Sim you know set your stops don't bagle don't just you know hope it'll go back up but ultimately sometimes we have to make those mistakes ourselves to feel that pain and it's that pain that becomes sort of the motivator to not do that again uh and so I had some pain earlier this year on um and I could just go through let's see I'll just do a custom range from January to March so you could see when that draw down was now I can't remember but I I thought it was in the beginning of March um so apply this all right so then we'll click 90 days yeah there it is so these were two back-to-back red days this is a $119,000 red day that was the biggest red day that I'd had in over a year was not happy about that uh so you know that was that happened on um March looks like 11th and 12th I had two back-to-back red days and you know so it took some time to recover from that now if we go forward here we go from March to um May because I think we can only show three months here in this little view you'll see that I had the $30,000 loss and then it took me some time to kind of get back and then finally recovered with a nice hot streak here couple big green days $20,000 day and then I had two more red days 2,000 and 6,000 not as bad tolerable oh and another one right here this must have been like 10,000 another one right here so you know had a couple little draw downs but was able to uh rally back up and it's actually interesting cuz this and this almost look the same so the recovery the drop back up and then pushing higher recovery sorry drop sort of back up like that I think it's very common so you know for where I'm at right now I feel like it's really important um for my trading that I keep myself in a state where I'm kind of always ready to step up to the plate um and I'm not in a big emotional draw down it makes me a better Trader it also makes me a better teacher better educator better Mentor for you guys I try to lead by example as much as I can so this is something that I'm thinking about a lot and it might seem at times like I'm under trading uh but I think one of the things that gets a lot of beginner Traders into trouble is overtrading and learning to trade a little bit less and take your profits and not overstay your welcome is an important skill and it's something that takes takes time it's easy to punch those buy and sell buttons especially when it's commission free trading but you know eventually I think you'll learn that you may be better off with just a few trades each day so let's see so I had one trade on kit that was a loser and then I had I guess I don't know how many trades I took on mg uh I probably took let's see looks like I've got one 2 3 4 5 6 7 8 9 10 11 12 14 15 16 17 18 looks like 17 or 18 trades on it um you know and and so I traded it a lot for all that I as much as I traded it I did make as much as I feel like I should have which was also part of my reasoning for saying you know what this is just not feeling like it's happening and I got to kind of go with my gut because when something is hot I I mean I I'm dialed in and I know it I don't have to second guess it I I know what's going on but today was a day where it just felt you know not quite strong enough so you know that break of vwap setup um especially pre-market can be really powerful as short sellers kind of get caught off guard and all of a sudden you get that swing back up um you know got it right here too this is the first one I traded but because of the inherent weak weakness you have to be careful and usually it's that first swing that's the strongest and that's where we want to just see it like not let up we just want to see it keep going so once it sort of lets up the first time it's kind of like now I think the the element of surprise is kind of gone shorts are going to be a little bit more like oh this one's a little tricky and Longs are going to be thinking the same because it keeps going above and below vwap so you sort of get one shot at a nice break of vwap and we got one on it today but it wasn't perfect um I see rgc is halted right now this one's a Chinese stock um very light volume thinly traded the problem with this is that um although you you can certainly look at it on the daily chart and think this is interesting over 12 right it's got room up to 13 14 maybe higher what's going to send it to that level what's the Catalyst what's the news I got nothing right so purely technical well does it have high short interest I sort of doubt it I mean you could check but I sort of doubt it so you know unfortunately it's um it's hard to trust and let's look at the volume rgc yeah so you got 162,000 shares of volume now if this had breaking news that'd be different breaking news would be like okay we've got a reason for this thing to be going up right now but without the breaking news it's hard to trust um let's see so let me just check um so I could check on ortex just to see what the short interest is but I I don't I don't know I mean some of these Chinese stocks can get heavily shorted so it's not impossible it's a little higher but no it's it's showing very low so looks like short interest really it could just be that there's not a lot of shares available to short the cost to borrow is high the utilization is 64% zpp this is one that I think has higher short interest see but you know this one had a move but now it's kind of come back down a bit go here let's see screening to give you a list of stocks with high short so abio is still on there um that one right now has the highest um short score and but it's been on there for a couple weeks and um you know the stock hasn't really done much um in fact they even have some headline today today but you know it's just nothing's really happening with it rgc resuming there so you can see that spread 25 cent spread right now 26 Cents that tightens up and then oh my gosh back to 1172 oh now you've got 70 Cent spread that's when things get scary right just can't nothing you can do really about that it's just not it's just not tradable so you know I think this is kind of where we're at right now um for those of you guys that are new I want to sort of reiterate a couple things this is a time of year when hey if we get a couple wild card stocks and we get a couple big moves you want to try to take some of that profit lock it up and put it aside to me trading is so much about like preparing for a rainy day you know take your profit be disciplined about paying yourself put that profit aside and then just remember that there's going be a stretch maybe it's this week maybe it's next week whatever where things are going to get slow and you're going to need that early profit to tide you over so you feel like the wind is at your back you feel like you're in the driver's seat you don't need to get desperate and I think that means um for a lot of Traders it's always great if you could trade in a retirement account because that is taxfree you don't have to be taking profit out for taxes you could just be sort of chipping away adding a little adding a little adding a little and you want to avoid spending too much of your profit if if you can especially early on I've seen a lot of Traders make this mistake where they'll start making money they'll spend it as soon as it comes in they're then come up on a stretch where things get slow and their account is going below you know the PDT level or going below the minimum of whatever their uh broker is and I think that trading from that State of Mind of being really tight financially uh will encourage poor Trad habits and behaviors where you get desperate you start focusing just on the money you're not focusing on following the process because the when the process doesn't work it can be easy to just abandon it but there are going to be times where you follow the process like I did every day this week and you know you come up a little short and I don't actually I don't have my total of where I'm at um right now in the week but I'll I'll log in and check so let's see um I got to export my trades we have my Trad R viiew report so we're going to do August um that's fine so we'll see where I'm at for the month of August so far not including yesterday so I've got to got to grab those trades and import them light speed um is a little annoying because you have to wait till the next day to import your trades so I can't import um today's trades until tomorrow it's kind of annoying but anyways it's fine so let's see so that's getting ready so we'll go to detailed so sitting at 15,9 59 but that doesn't include the last two days so let me just import these trades here I just downloaded them so I'm going to go import you always got to tag your account make sure you tag it with the right um tag that you want to use for me I tag it as a IRA account it's a retirement individual retirement account import those trades refresh it it'll refresh a couple times it get all those trades in there and let's see refresh one more time one more time maybe oh no is that where I finished yesterday yeah maybe that is yeah yesterday was a really small green day uh that was yeah so anyways I guess it didn't make that much of a difference but okay so 16,000 400 profit loss ratio not great so far negative a couple of bigger losers golly which loss was that $7500 now sometimes bblg see see I this I find this a little annoying cuz this is grouping trades together this is grouping that looks like a trade that looks like a trade that looks like a trade so it's grouped together like four trades um that's I find it annoying when it does that I don't know why it'll do that sometimes uh but if I see that then let's see um you can do a manual split to split up a trade the only thing that's hard is you've got to know where to split it um so I'm not going to worry about it right now it doesn't really matter but anyways that's a little annoying cuz that's going to sort of negatively affect my um it's going to show as a big Lo one big loser when it's not really but you can see here 7even minute average winners 16 minute average losers that's because it's grouping all those trades together wonder why it's doing that I don't know I'll have to I'll have to see if I can figure that out but anyways doesn't doesn't matter that much um that's where I'm at so far on the month so if we look at the month in um calendar view excuse me uh we're still at the very beginning of August right so this is going to be a $10,000 week when you add in uh today's profit so that's good $110,000 week last week was 77,000 but only a two-day week for August so we still have three full weeks for the for the rest of the month right three full weeks so it's it's just about hitting those base hits staying grounded and being comfortable with there might be some no trade days there might be some days where there's nothing that looks good and then the next day we have a stock that goes up 200% 300% and so I'm going to just be quick to ease off the gas slow down and then put the pedal right back to the metal and the whole time try to keep myself where my account is more or less near at all-time highs so not in a deep draw down so that's kind of what I'm thinking for right now um and so again for those of you guys that are new it's a good time to be studying don't expect to see back-to-back home runs in August that's not typically what we get but it's a good time to study and I always say if you can make it during a slow Market that's going to set a really strong foundation for when things pick back up all right so make sure you study get yourself ready and I would say um at this point I'll do my game plan for the week ahead on Sunday I'll upload that probably Sunday morning somewhere around Sunday morning so I'll look at how everything finished today I'll go through the stocks that I like the most I'll see if I can put together a watch list for Monday and a little bit of a game plan for the week ahead and um and then I also have an upload that I'll publish on Saturday on YouTube so you guys um make sure you are subscribed to the channel so you get the notification when those uploads go live and I want to thank you as always for tuning in so I'll remind you please take it slow manage your risk don't overstay your welcome practice in a Sim before you put real money on the line and I'll see you guys back here bright and early on Monday morning okay see you Monday